Fannie Mae Second Home Mortgage Guidelines And Requirements


Fannie Mae Second Home Mortgage Guidelines And Requirements

This BLOG On Fannie Mae Second Home Mortgage Guidelines And Requirements Was UPDATED On April 19th, 2019

By Gustan Cho

There are various reasons why homeowners want to purchase a second home.

  • Second home financing have different mortgage guidelines than an investment home financing
  • Investment home financing require the following:
    • larger down payment
    • higher interest rates
    • require 6 months of principal, interest, taxes, and insurance as reserves
  • Investment home financing require 20% down payment
  • Second home mortgage guidelines requires 10% down payment
  • Second home financing mortgage rates are about 0.50% to 0.75% lower than investment mortgage rates
  • Second home and investment property mortgage loans are conventional loans only
  • This because FHA only allows owner occupant primary residences only
  • Second home and investment property borrowers need to meet conventional mortgage guidelines
  • Home buyers of second homes must not just qualify personally but the second home distance requirements

Qualifying A Subject Property As A Second Home

Second home buyers need to make sure the potential purchase of the second home will qualify as a second home under Fannie Mae Second Home Mortgage Guidelines:

  • A second home purchase cannot be too close to the home buyer’s primary residence
  • The purchase needs to qualify as a second home
  • For example, here is a case scenario:
    • if a second home buyer primary residence is in Tampa, Florida
    • the home buyer wants to purchase another property in Tampa, Florida
    • buyer will have a tough time convincing lender that the second home purchase will be used as a second or vacation home
    • the chances are that they will not qualify for a second home mortgage loan due to the close proximity to a primary residence
  • They can qualify for an investment property mortgage loan
  • However, as mentioned earlier, an investment property home mortgage loan requires a larger down payment of a minimum of 20%
  • Mortgage rates will probably 0.50% to 0.75% higher than a second home mortgage rate
  • However, if the second home buyer is purchasing a waterfront property that is close to the primary residence or in a resort like Orlando nearby Disney World, then the deal will make sense as a second home
  • Another example that would classify as a second home is if the second home buyer lives in Illinois and plans on purchasing a home in Florida
  • This case scenario definitely makes sense
  • The second home buyer will have no problem qualifying for second home financing from any mortgage lender

Eligibility Requirements For Second Home Mortgage Guidelines

To qualify for second home financing, the home buyer needs a minimum of 10% down payment.

  • Both the primary housing payment and second home housing payment will be included in calculating debt to income ratios
  • Maximum debt to income ratios are capped at 45%
  • Rental income or potential rental income cannot be used to qualify as additional income

Second Home Purchase Strategy

Many folks who plan on retiring to Florida or California intend on purchasing their home there to retire in and sell their existing home.

  • However, if they retire, they may not qualify for a mortgage due to no income or limited income
  • Most retirees work part time on a cash paying job and get social security or pension
  • For those who feel they will not qualify after they quit their jobs can see if they can purchase their retirement home as a second home while they are still working full time
  • Once they qualify for a second home mortgage loan, they can purchase the second home, retire, sell their home, and move into their second home and use it as a primary residence
  • Before quitting a job or giving notice to the employer they are retiring, please explore this option

What If You Do Not Qualify For A Second Home Due To High Debt To Income Ratios

In the event buyers do not qualify for second home financing due to high debt to income ratios, they can purchase second home as an investment home with 25% down payment.

  • By financing it as an investment home with 25% down payment, buyers can use 75% of the potential rental income towards debt to income ratio qualification
  • This is the case even if they do not have any tenants or do not intend to rent the home
  • Although buyers have to come up with the larger down payment and get a higher mortgage rate due to being an investment home mortgage loan, this can be an option in the event buyers cannot qualify due to high debt to income ratios

Buyers Do Not Need A Primary Residence To Purchase A Second Home

Second Home Buyers currently living with family and do not own a home but want to purchase a vacation home or second home in a different area can do that.

  • Same down payment and debt to income ratio requirements apply
  • 10% down payment and no greater than a 45% debt to income ratio

To qualify for second home financing with a direct lender with no lender overlays on government and conventional loans can contact us at The Gustan Cho Team at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com.

Related> How to pay for a second home

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